Buy to Let

Posted by admin On December 21st 2020

This is a secured loan for those who wish to purchase a property with the intention of renting it out to tenants. Such mortgages usually require a larger deposit than residential mortgages and the interest rates are also normally higher. Lenders quite often look for extra security where this is concerned, as there could be periods where the property is vacant or, in certain cases, the tenant falls behind in their payments, thus leading to the landlord deferring on mortgage payments.

Buy-to-let mortgages:

  • Fixed-rate mortgage – a fixed repayment which is set out over a specific period. Usually, the longer the period, the higher the interest level will be.
  • Discount variable mortgage – a set discount is applied, taking the lenders standard variable rate into consideration. If the lender’s rate fluctuates, so will the borrower’s; however, the discount remains the same.
  • Tracker mortgage – this is pretty much the opposite of a discount variable mortgage. The interest rates are set at a percentage above the variable rate, but it is marked up against the base rate set out by the Bank of England. The borrower’s rate will fluctuate as the Bank of England’s does.

Re-mortgage buy to let property:

One way to raise the capital for a deposit to buy a rental property or purchase it outright is to re-mortgage. While this could be a great way to release equity in the home, there are some significant factors to consider. Firstly, in addition to the cost of re-mortgaging, investing in a buy-to-let property can be very expensive and the return is not guaranteed, so you need to be fully prepared for any eventuality.

When savings account interest rates are low and the demand for homes to rent and the value of property is on the rise, it seems logical to make an investment buying a property to rent out.

For the majority of property owners who have injected a significant amount of their cash into buying a first home and maintaining monthly repayments, it can be difficult to save enough capital to put together a deposit for a buy-to-let property, so this is where re-mortgaging can seem a logical and sensible step towards purchasing a buy-to-let property.

When a person re-mortgages a property, the current mortgage is switched to a new provider. The new provider then pays off the old mortgage and, as part of a new cheaper deal and possible shorter term, the monthly repayments are then made to the new provider.

As it is more than likely the re-mortgage deal from the new provider will save the borrower money, this is ideal to free up cash in order to put a deposit on a buy-to-let property.

Based on the equity in the property, a borrower may be able to be lent larger amounts when re-mortgaging. Equity is worked out by calculating the amount of the mortgage outstanding minus the value of the property. In short, if the property has gone up in value since it was purchased, or the majority of the mortgage has been paid off, the more equity you are likely to have.